##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended September 30, 2005
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from to
 Commission File Number: 000-25955
 Waste Services, Inc.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    01-0780204(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 1122 International Blvd., Suite 601, Burlington, Ontario, Canada L7L 6Z8
 (905) 319-1237  (Registrants telephone number, including area code)
  þ o
 þ o
 þ o




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TABLE OF CONTENTS
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    2Condensed Consolidated Balance Sheets as of September 30, 2005 (unaudited) and
December 31, 2004
    
    
    2Unaudited Condensed Consolidated Statements of Operations for the three and nine
months ended September 30, 2005 and 2004
    
    
    3Unaudited Condensed Consolidated Statement of Shareholders Equity for the nine
months ended September 30, 2005
    
    
    4Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended
September 30, 2005 and 2004
    
    
    5Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    27Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    40Item 4. Controls and Procedures
    
    
    40PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    40Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    41Item 3. Defaults upon Senior Securities
    
    
    41Item 4. Submission of Matters to a Vote of Security Holders
    
    
    41Item 5. Other Information
    
    
    41Item 6. Exhibits
    
    
    41Signatures
    
    
    42EX-10.1 EMPLOYMENT AGREEMENT, DAVID SUTHERLAND-YOESTEX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATION OF THE CEO AND CFO
  1




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In thousands, except share amounts)
 September 30,
    
    
    December 31,2005
    
    
    2004(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    2,512
    
    
    $
    8,507Accounts receivable (net of allowance for doubtful accounts of $836
and $1,264 as of September 30, 2005 and December 31, 2004, respectively)
    
    
    54,174
    
    
    
    47,856Prepaid expenses and other current assets
    
    
    8,219
    
    
    
    10,940Total current assets
    
    
    64,905
    
    
    
    67,303Property and equipment, net
    
    
    134,683
    
    
    
    130,467Landfill sites, net
    
    
    172,459
    
    
    
    169,616Goodwill and other intangible assets, net
    
    
    334,736
    
    
    
    327,756Other assets
    
    
    23,561
    
    
    
    25,441Total assets
    
    $
    730,344
    
    
    $
    720,583LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    25,066
    
    
    $
    25,949Accrued expenses and other current liabilities
    
    
    48,133
    
    
    
    42,533Short-term financing and current portion of long-term debt
    
    
    1,174
    
    
    
    1,166Total current liabilities
    
    
    74,373
    
    
    
    69,648Long-term debt
    
    
    279,333
    
    
    
    276,214Accrued closure, post-closure and other obligations
    
    
    20,268
    
    
    
    10,974Cumulative mandatorily redeemable Preferred Stock (net of
discount of $3,980 and $8,426 as of September 30, 2005 and
December 31, 2004, respectively)
    
    
    79,599
    
    
    
    64,971Total liabilities
    
    
    453,573
    
    
    
    421,807Commitments and contingenciesShareholders equity:Common stock $0.01 par value; 500,000,000 shares authorized;
93,523,322 and 90,358,196 shares issued and outstanding as of
September 30, 2005 and December 31, 2004, respectively
    
    
    935
    
    
    
    904Additional paid-in capital
    
    
    353,898
    
    
    
    345,904Treasury stock at cost; 500,000 shares as of September 30, 2005 and December 31, 2004
    
    
    (1,235
    )
    
    
    (1,235
    )Options, warrants and deferred stock-based compensation
    
    
    29,741
    
    
    
    28,282Accumulated other comprehensive income
    
    
    35,836
    
    
    
    29,133Accumulated deficit
    
    
    (142,404
    )
    
    
    (104,212
    )Total shareholders equity
    
    
    276,771
    
    
    
    298,776Total liabilities and shareholders equity
    
    $
    730,344
    
    
    $
    720,583
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##### Table of Contents



WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except per share data)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenue
    
    $
    101,751
    
    
    $
    94,615
    
    
    $
    286,120
    
    
    $
    217,558Operating and other expenses:Cost of operations (exclusive of depreciation,
depletion and amortization)
    
    
    73,507
    
    
    
    69,462
    
    
    
    208,090
    
    
    
    155,752Selling, general and administrative expense
    
    
    13,613
    
    
    
    18,395
    
    
    
    42,985
    
    
    
    41,064Settlement with sellers of Florida Recycling
    
    
    (4,120
    )
    
    
    (8,635
    )
    
    
    (4,120
    )
    
    
    (8,635
    )Depreciation, depletion and amortization
    
    
    11,400
    
    
    
    9,712
    
    
    
    31,548
    
    
    
    22,993Foreign exchange gain and other
    
    
    844
    
    
    
    21
    
    
    
    607
    
    
    
    (352
    )Income from operations
    
    
    6,507
    
    
    
    5,660
    
    
    
    7,010
    
    
    
    6,736Interest expense
    
    
    7,274
    
    
    
    5,681
    
    
    
    21,272
    
    
    
    24,263Changes in fair value of warrants
    
    
    
    
    
    
    (532
    )
    
    
    
    
    
    
    (111
    )Cumulative mandatorily redeemable preferred stock dividends and
amortization of issue costs
    
    
    5,392
    
    
    
    4,535
    
    
    
    15,348
    
    
    
    12,844Loss before income taxes
    
    
    (6,159
    )
    
    
    (4,024
    )
    
    
    (29,610
    )
    
    
    (30,260
    )Income tax provision
    
    
    3,252
    
    
    
    1,695
    
    
    
    8,582
    
    
    
    5,033Loss before cumulative effect of change in accounting principle
    
    
    (9,411
    )
    
    
    (5,719
    )
    
    
    (38,192
    )
    
    
    (35,293
    )Cumulative effect of change in accounting principle, net of provision
for income taxes of nil and $132 for the nine months ended
September 30, 2005 and 2004, respectively
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    225Net loss
    
    $
    (9,411
    )
    
    $
    (5,719
    )
    
    $
    (38,192
    )
    
    $
    (35,068
    )Basic and diluted loss per share:Basic and diluted loss per share before cumulative effect
of change in accounting principle
    
    $
    (0.10
    )
    
    $
    (0.06
    )
    
    $
    (0.39
    )
    
    $
    (0.41
    )Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loss per share  basic and diluted
    
    $
    (0.10
    )
    
    $
    (0.06
    )
    
    $
    (0.39
    )
    
    $
    (0.41
    )Weighted average common shares outstanding  basic and diluted
    
    
    99,413
    
    
    
    96,854
    
    
    
    98,345
    
    
    
    85,484
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WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
 For the Nine Months Ended September 30, 2005
 (In thousands)
 AccumulatedOptions, Warrants
    
    
    OtherTreasury
    
    
    and Deferred
    
    
    Comprehensive
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Additional
    
    
    Stock
    
    
    Stock-Based
    
    
    Income
    
    
    Accumulated
    
    
    ShareholdersShares
    
    
    Amount
    
    
    Paid-in Capital
    
    
    at Cost
    
    
    Compensation
    
    
    (Loss)
    
    
    Deficit
    
    
    EquityBalance, December 31, 2004
    
    
    90,358
    
    
    $
    904
    
    
    $
    345,904
    
    
    $
    (1,235
    )
    
    $
    28,282
    
    
    $
    29,133
    
    
    $
    (104,212
    )
    
    $
    298,776Common shares and warrants issued
    
    
    2,926
    
    
    
    28
    
    
    
    7,252
    
    
    
    
    
    
    
    630
    
    
    
    
    
    
    
    
    
    
    
    7,910Exercise of options and warrants
    
    
    161
    
    
    
    2
    
    
    
    769
    
    
    
    
    
    
    
    (250
    )
    
    
    
    
    
    
    
    
    
    
    521Deferred stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,079
    
    
    
    
    
    
    
    
    
    
    
    1,079Conversion of exchangeable shares
    
    
    78
    
    
    
    1
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other paid-in capital
    
    
    
    
    
    
    
    
    
    
    (26
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26
    )Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,703
    
    
    
    
    
    
    
    6,703Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (38,192
    )
    
    
    (38,192
    )Balance, September 30, 2005
    
    
    93,523
    
    
    $
    935
    
    
    $
    353,898
    
    
    $
    (1,235
    )
    
    $
    29,741
    
    
    $
    35,836
    
    
    $
    (142,404
    )
    
    $
    276,771
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WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 Nine Months Ended September 30,2005
    
    
    2004Cash flows from operating activities:Net loss
    
    $
    (38,192
    )
    
    $
    (35,068
    )Adjustments to reconcile net loss to net cash flows
from operating activities:Depreciation, depletion, and amortization
    
    
    31,548
    
    
    
    22,993Non-cash component of settlement with sellers of Florida Recycling
    
    
    (4,120
    )
    
    
    (1,235
    )Cumulative mandatorily redeemable preferred stock dividends and amortization
of issue costs
    
    
    15,348
    
    
    
    12,844Amortization of debt issue costs
    
    
    1,057
    
    
    
    9,930Deferred income tax provision
    
    
    8,582
    
    
    
    5,033Non-cash stock-based compensation (benefit)
    
    
    1,079
    
    
    
    (648
    )Cumulative effect of change in accounting principle, net of tax
    
    
    
    
    
    
    (225
    )Foreign exchange loss (gain)
    
    
    630
    
    
    
    (72
    )Other non-cash items
    
    
    884
    
    
    
    (159
    )Changes in operating assets and liabilities (excluding the effects
of acquisitions):Accounts receivable
    
    
    (5,322
    )
    
    
    (11,045
    )Prepaid expenses and other current assets
    
    
    2,473
    
    
    
    (8,443
    )Accounts payable
    
    
    (1,537
    )
    
    
    10,665Accrued expenses and other current liabilities
    
    
    4,171
    
    
    
    6,12216,601
    
    
    
    10,692Cash flows from investing activities:Cash used in business combinations and significant asset
acquisitions, net of cash acquired
    
    
    (6,595
    )
    
    
    (164,319
    )Capital expenditures
    
    
    (27,399
    )
    
    
    (33,593
    )Proceeds from asset sales and business divestitures
    
    
    1,735
    
    
    
    9,939Deposits for business acquisitions and other
    
    
    (793
    )
    
    
    (1,203
    )(33,052
    )
    
    
    (189,176
    )Cash flows from financing activities:Proceeds from issuance of debt
    
    
    4,000
    
    
    
    280,000Principal repayments of debt and capital lease obligations
    
    
    (1,263
    )
    
    
    (184,706
    )Sale of common shares and warrants
    
    
    7,125
    
    
    
    53,600Proceeds from release of restricted cash and release of collateral
supporting letters of credit
    
    
    
    
    
    
    24,101Proceeds from the exercise of options and warrants
    
    
    521
    
    
    
    1,041Fees paid for financing transactions
    
    
    
    
    
    
    (13,472
    )10,383
    
    
    
    160,564Effect of exchange rate changes on cash and cash equivalents
    
    
    73
    
    
    
    262Decrease in cash and cash equivalents
    
    
    (5,995
    )
    
    
    (17,658
    )Cash and cash equivalents, beginning of period
    
    
    8,507
    
    
    
    21,062Cash and cash equivalents, end of period
    
    $
    2,512
    
    
    $
    3,404
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WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1. Organization of Business and Basis of Presentation
     6




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WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
   Three
Months EndedSeptember 30,
    

Nine
Months EndedSeptember 30,2005
    
    2004
    
    2005
    
    2004Options to purchase common shares
    
    
    70
    
    
    
    67
    
    
    
    52
    
    
    
    915Warrants to purchase common shares
    
    
    2,453
    
    
    
    2,636
    
    
    
    2,261
    
    
    
    5,194Dilutive securities
    
    
    2,523
    
    
    
    2,703
    
    
    
    2,313
    
    
    
    6,109
  2. New Accounting Pronouncements
 Share-Based Payment Accounting for
Stock-Based Compensation , Accounting for Stock
Issued to Employees.
 7




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WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  3. Property and Equipment
  September 30,
    
    
    December 31,2005
    
    
    2004(Unaudited)Land and buildings
    
    $
    27,799
    
    
    $
    18,872Vehicles
    
    
    101,363
    
    
    
    101,215Containers, compactors, landfill and recycling equipment
    
    
    69,804
    
    
    
    61,550Furniture, fixtures, other office equipment and leasehold improvements
    
    
    10,365
    
    
    
    8,562Total property and equipment
    
    
    209,331
    
    
    
    190,199Less: accumulated depreciation
    
    
    74,648
    
    
    
    59,732Property and equipment, net
    
    $
    134,683
    
    
    $
    130,467
 4. Landfill Sites, Accrued Closure, Post-Closure and Other Obligations
 Landfill Sites
  September 30,
    
    
    December 31,2005
    
    
    2004(Unaudited)Landfill sites
    
    $
    201,793
    
    
    $
    188,616Less: accumulated depletion
    
    
    29,334
    
    
    
    19,000Landfill sites, net
    
    $
    172,459
    
    
    $
    169,616
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##### Table of Contents



WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 2005
    
    
    2004Balance, beginning of period
    
    $
    169,616
    
    
    $
    117,541Landfill purchase price
    
    
    3,000
    
    
    
    41,982Landfill site construction
    
    
    7,833
    
    
    
    11,555Additional asset retirement obligations
    
    
    1,270
    
    
    
    534Depletion
    
    
    (9,564
    )
    
    
    (5,166
    )Divestitures
    
    
    
    
    
    
    (154
    )Capitalized interest
    
    
    
    
    
    
    178Purchase price allocation adjustments for prior acquisitions
    
    
    
    
    
    
    5,905Effect of foreign exchange rate fluctuations
    
    
    304
    
    
    
    377Change in accounting principle
    
    
    
    
    
    
    (2,474
    )Balance, end of period
    
    $
    172,459
    
    
    $
    170,278
  Accrued Closure, Post-Closure and Other Obligations
  September 30,
    
    
    December 31,2005
    
    
    2004(Unaudited)Accrued closure and post-closure obligations
    
    $
    8,413
    
    
    $
    6,390Deferred income tax liability
    
    
    11,360
    
    
    
    3,984Other obligations
    
    
    495
    
    
    
    600$
    20,268
    
    
    $
    10,974
  9




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##### Table of Contents



WASTE SERVICES, INC.
 (Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 2005
    
    
    2004Balance, beginning of period
    
    $
    6,390
    
    
    $
    7,737Acquisitions
    
    
    
    
    
    
    52Accretion
    
    
    540
    
    
    
    342Additional asset retirement obligations
    
    
    1,270
    
    
    
    534Divestitures
    
    
    
    
    
    
    (146
    )Purchase price allocation adjustments for prior acquisitions
    
    
    
    
    
    
    (92
    )Effect of foreign exchange rate fluctuations
    
    
    213
    
    
    
    132Change in accounting principle
    
    
    
    
    
    
    (2,831
    )Balance, end of period
    
    $
    8,413
    
    
    $
    5,728
 5. Goodwill and Other Intangible Assets
  September 30,
    
    
    December 31,2005
    
    
    2004(Unaudited)Other intangible assets subject to amortization:Customer relationships and contracts
    
    $
    35,441
    
    
    $
    50,495Non-competition agreements and other
    
    
    3,152
    
    
    
    4,12638,593
    
    
    
    54,621Less: accumulated amortization:Customer relationships and contracts
    
    
    (10,747
    )
    
    
    (5,913
    )Non-compete agreements and other
    
    
    (1,757
    )
    
    
    (1,782
    )Other intangible assets subject to amortization, net
    
    
    26,089
    
    
    
    46,926Goodwill
    
    
    308,647
    
    
    
    280,830Goodwill and other intangible assets, net
    
    $
    334,736
    
    
    $
    327,756
  2005
    
    
    2004U.S.
    
    
    Canada
    
    
    Total
    
    
    TotalBalance, beginning of period
    
    $
    195,575
    
    
    $
    85,255
    
    
    $
    280,830
    
    
    $
    144,544Acquisitions
    
    
    9
    
    
    
    162
    
    
    
    171
    
    
    
    143,075Divestitures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,599
    )Effect of foreign exchange rate fluctuations
    
    
    
    
    
    
    2,898
    
    
    
    2,898
    
    
    
    2,190Purchase price allocation adjustments
for prior acquisitions
    
    
    24,748
    
    
    
    
    
    
    
    24,748
    
    
    
    (6,108
    )Balance, end of period
    
    $
    220,332
    
    
    $
    88,315
    
    
    $
    308,647
    
    
    $
    275,102
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WASTE SERVICES, INC.
 (Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  6. Other Assets
  September 30,
    
    
    December 31,2005
    
    
    2004(Unaudited)Debt and redeemable Preferred Stock issue costs, net of accumulated amortization
of $4,119 as of September 30, 2005 and $2,271 as of December 31, 2004
    
    $
    9,132
    
    
    $
    10,833Acquisition deposits and deferred acquisition costs
    
    
    13,707
    
    
    
    12,576Deferred income taxes
    
    
    
    
    
    
    1,202Other assets
    
    
    722
    
    
    
    830$
    23,561
    
    
    $
    25,441
 7. Debt
  September 30,
    
    
    December 31,2005
    
    
    2004(Unaudited)Senior Secured Credit Facilities:Revolving credit facility due April 2009, floating interest rate at 8.31%
as of September 30, 2005 and 6.71% as of December 31, 2004
    
    $
    19,000
    
    
    $
    15,000Term loan facility due April 2011, floating interest rate at 8.26% as of
September 30, 2005 and 6.78% as of December 31, 2004
    
    
    98,500
    
    
    
    99,250Senior Subordinated Notes due 2014, fixed interest rate at 9.5% as of
September 30, 2005 and December 31, 2004
    
    
    160,000
    
    
    
    160,000Other subordinated promissory notes payable due 2017, fixed interest
rate at 6.67% as of September 30, 2005 and December 31, 2004
    
    
    3,007
    
    
    
    3,130280,507
    
    
    
    277,380Less: current portion
    
    
    (1,174
    )
    
    
    (1,166
    )Long-term portion
    
    $
    279,333
    
    
    $
    276,214
 Senior Secured Credit Facilities
  11




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##### Table of Contents



WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
     Senior Subordinated Notes
   12




---



##### Table of Contents



WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
     8. Cumulative Mandatorily Redeemable Preferred Stock
    13




---



##### Table of Contents



WASTE SERVICES, INC.
 (Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
   9. Commitments and Contingencies
 Environmental Risks
   Legal Proceedings
  14




---



##### Table of Contents



WASTE SERVICES, INC.
 (Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
      Surety Bonds, Letters of Credit and Insurance
   15




---



##### Table of Contents



WASTE SERVICES, INC.
 (Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Other Contractual Arrangements
   10. Authorized Capital Stock and Migration Transaction
 Total Shares
  
    
    500,000,000 shares of common stock, par value 0.01 per share; and
    
    5,000,000 shares of preferred stock, par value 0.01 per share, of which 100,000
shares have been designated as Series A Preferred Stock and one share has been designated
as Special Voting Preferred Stock.
 Preferred Stock
  Migration Transaction
    16




---



##### Table of Contents



WASTE SERVICES, INC.
 (Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
   11. Employee and Director Stock Option Plans and Option Grants
 Accounting for Stock Issued to Employees Accounting for Stock-Based
Compensation Accounting for Stock-Based Compensation-Transition and Disclosure
 Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net loss attributable to Common
Shareholders as reported
    
    $
    (9,411
    )
    
    $
    (5,719
    )
    
    $
    (38,192
    )
    
    $
    (35,068
    )Stock-based employee compensation expense
pursuant to SFAS No. 123
    
    
    (2,381
    )
    
    
    (2,853
    )
    
    
    (7,217
    )
    
    
    (7,561
    )Pro forma net loss attributable to
Common Shareholders
    
    $
    (11,792
    )
    
    $
    (8,572
    )
    
    $
    (45,409
    )
    
    $
    (42,629
    )Basic and diluted loss per share:As reported
    
    $
    (0.10
    )
    
    $
    (0.06
    )
    
    $
    (0.39
    )
    
    $
    (0.41
    )Pro forma
    
    $
    (0.12
    )
    
    $
    (0.09
    )
    
    $
    (0.46
    )
    
    $
    (0.50
    )
  Three Months Ended September 30,
    
    Nine Months Ended September 30,2005
    
    2004
    
    2005
    
    2004Annual dividend yield
    
    
    
    
    

        

    
        

    

        Weighted-average
expected life
(years)
    
    
    N/A
    
    
    3.0 years
    
    2.8 years
    
    3.0 yearsRisk-free interest
rate
    
    
    N/A
    
    
    2.57% to 4.62%
    
    2.57% to 4.62%
    
    2.57% to 4.62%Volatility
    
    
    N/A
    
    


71%
    

74%
    
    
    
53%
  17




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##### Table of Contents



WASTE SERVICES, INC.
 (Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  12. Comprehensive Gain (Loss)
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net loss
    
    $
    (9,411
    )
    
    $
    (5,719
    )
    
    $
    (38,192
    )
    
    $
    (35,068
    )Foreign currency translation adjustment
    
    
    10,314
    
    
    
    9,761
    
    
    
    6,703
    
    
    
    4,346Comprehensive gain (loss)
    
    $
    903
    
    
    $
    4,042
    
    
    $
    (31,489
    )
    
    $
    (30,722
    )
 13. Segment Information
 Disclosures about Segments of an Enterprise and Related Information
 14. Condensed Consolidating Financial Statements
  18




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##### Table of Contents



WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 September 30, 2005Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    Consolidated(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    766
    
    
    $
    1,746
    
    
    $
    
    
    
    $
    2,512Accounts receivable, net
    
    
    25,965
    
    
    
    28,209
    
    
    
    
    
    
    
    54,174Prepaid expenses and other current assets
    
    
    4,519
    
    
    
    3,700
    
    
    
    
    
    
    
    8,219Total current assets
    
    
    31,250
    
    
    
    33,655
    
    
    
    
    
    
    
    64,905Property and equipment, net
    
    
    68,417
    
    
    
    66,266
    
    
    
    
    
    
    
    134,683Landfill sites, net
    
    
    161,394
    
    
    
    11,065
    
    
    
    
    
    
    
    172,459Goodwill and other intangible assets, net
    
    
    244,871
    
    
    
    89,865
    
    
    
    
    
    
    
    334,736Other assets
    
    
    10,243
    
    
    
    13,318
    
    
    
    
    
    
    
    23,561Investment in subsidiaries
    
    
    202,660
    
    
    
    
    
    
    
    (202,660
    )
    
    
    Due from affiliate
    
    
    
    
    
    
    21,032
    
    
    
    (21,032
    )
    
    
    Total assets
    
    $
    718,835
    
    
    $
    235,201
    
    
    $
    (223,692
    )
    
    $
    730,344LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    12,522
    
    
    $
    12,544
    
    
    $
    
    
    
    $
    25,066Accrued expenses and other current liabilities
    
    
    37,625
    
    
    
    10,508
    
    
    
    
    
    
    
    48,133Short-term financing and current portion of long-term debt
    
    
    1,174
    
    
    
    
    
    
    
    
    
    
    
    1,174Total current liabilities
    
    
    51,321
    
    
    
    23,052
    
    
    
    
    
    
    
    74,373Long-term debt
    
    
    279,333
    
    
    
    
    
    
    
    
    
    
    
    279,333Accrued closure, post-closure and other obligations
    
    
    10,779
    
    
    
    9,489
    
    
    
    
    
    
    
    20,268Due to affiliate
    
    
    21,032
    
    
    
    
    
    
    
    (21,032
    )
    
    
    Cumulative Mandatorily Redeemable Preferred Stock, net
    
    
    79,599
    
    
    
    
    
    
    
    
    
    
    
    79,599Total liabilities
    
    
    442,064
    
    
    
    32,541
    
    
    
    (21,032
    )
    
    
    453,573Shareholders equity:Common stock of Waste Services, Inc
    
    
    935
    
    
    
    
    
    
    
    
    
    
    
    935Other equity
    
    
    275,836
    
    
    
    202,660
    
    
    
    (202,660
    )
    
    
    275,836Total shareholders equity
    
    
    276,771
    
    
    
    202,660
    
    
    
    (202,660
    )
    
    
    276,771Total liabilities and shareholders
equity
    
    $
    718,835
    
    
    $
    235,201
    
    
    $
    (223,692
    )
    
    $
    730,344
 19




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##### Table of Contents



WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 December 31, 2004Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    6,223
    
    
    $
    2,284
    
    
    $
    
    
    
    $
    8,507Accounts receivable, net
    
    
    24,509
    
    
    
    23,347
    
    
    
    
    
    
    
    47,856Prepaid expenses and other current assets
    
    
    6,440
    
    
    
    4,500
    
    
    
    
    
    
    
    10,940Total current assets
    
    
    37,172
    
    
    
    30,131
    
    
    
    
    
    
    
    67,303Property and equipment, net
    
    
    64,805
    
    
    
    65,662
    
    
    
    
    
    
    
    130,467Landfill sites, net
    
    
    155,710
    
    
    
    13,906
    
    
    
    
    
    
    
    169,616Goodwill and other intangible assets, net
    
    
    240,578
    
    
    
    87,178
    
    
    
    
    
    
    
    327,756Other assets
    
    
    12,105
    
    
    
    13,336
    
    
    
    
    
    
    
    25,441Investment in subsidiaries
    
    
    192,115
    
    
    
    
    
    
    
    (192,115
    )
    
    
    Due from affiliate
    
    
    
    
    
    
    8,869
    
    
    
    (8,869
    )
    
    
    Total assets
    
    $
    702,485
    
    
    $
    219,082
    
    
    $
    (200,984
    )
    
    $
    720,583LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    15,757
    
    
    $
    10,192
    
    
    $
    
    
    
    $
    25,949Accrued expenses and other current liabilities
    
    
    31,104
    
    
    
    11,429
    
    
    
    
    
    
    
    42,533Short-term financing and current portion of long-term debt
    
    
    1,166
    
    
    
    
    
    
    
    
    
    
    
    1,166Total current liabilities
    
    
    48,027
    
    
    
    21,621
    
    
    
    
    
    
    
    69,648Long-term debt
    
    
    276,214
    
    
    
    
    
    
    
    
    
    
    
    276,214Accrued closure, post-closure and other obligations
    
    
    5,628
    
    
    
    5,346
    
    
    
    
    
    
    
    10,974Due to affiliate
    
    
    8,869
    
    
    
    
    
    
    
    (8,869
    )
    
    
    Cumulative Mandatorily Redeemable Preferred Stock, net
    
    
    64,971
    
    
    
    
    
    
    
    
    
    
    
    64,971Total liabilities
    
    
    403,709
    
    
    
    26,967
    
    
    
    (8,869
    )
    
    
    421,807Shareholders equity:Common stock
of Waste Services, Inc.
    
    
    904
    
    
    
    
    
    
    
    
    
    
    
    904Other equity
    
    
    297,872
    
    
    
    192,115
    
    
    
    (192,115
    )
    
    
    297,872Total shareholders equity
    
    
    298,776
    
    
    
    192,115
    
    
    
    (192,115
    )
    
    
    298,776Total liabilities and shareholders
equity
    
    $
    702,485
    
    
    $
    219,082
    
    
    $
    (200,984
    )
    
    $
    720,583
 20




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##### Table of Contents



WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Three Months Ended September 30, 2005Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    Consolidated(Unaudited)Revenue
    
    $
    55,985
    
    
    $
    45,766
    
    
    $
    
    
    
    $
    101,751Operating and other expenses:Cost of operations (exclusive of depreciation,
depletion and amortization)
    
    
    43,501
    
    
    
    30,006
    
    
    
    
    
    
    
    73,507Selling, general and administrative expense
    
    
    8,038
    
    
    
    5,575
    
    
    
    
    
    
    
    13,613Settlement with sellers of Florida Recycling
    
    
    (4,120
    )
    
    
    
    
    
    
    
    
    
    
    (4,120
    )Depreciation, depletion and amortization
    
    
    6,101
    
    
    
    5,299
    
    
    
    
    
    
    
    11,400Foreign exchange gain and other
    
    
    35
    
    
    
    809
    
    
    
    
    
    
    
    844Income from operations
    
    
    2,430
    
    
    
    4,077
    
    
    
    
    
    
    
    6,507Equity earnings in investees
    
    
    (2,152
    )
    
    
    
    
    
    
    2,152
    
    
    
    Interest expense
    
    
    7,238
    
    
    
    36
    
    
    
    
    
    
    
    7,274Cumulative Mandatorily Redeemable Preferred Stock
dividends and amortization of issue costs
    
    
    5,392
    
    
    
    
    
    
    
    
    
    
    
    5,392Loss before income taxes
    
    
    (8,048
    )
    
    
    4,041
    
    
    
    (2,152
    )
    
    
    (6,159
    )Income taxes
    
    
    1,363
    
    
    
    1,889
    
    
    
    
    
    
    
    3,252Loss before cumulative effect of change in accounting principle
    
    
    (9,411
    )
    
    
    2,152
    
    
    
    (2,152
    )
    
    
    (9,411
    )Cumulative effect of change in accounting principle, net of provision
for income taxes of nil
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    $
    (9,411
    )
    
    $
    2,152
    
    
    $
    (2,152
    )
    
    $
    (9,411
    )
 21




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##### Table of Contents



WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Three Months Ended September 30, 2004Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    Consolidated(Unaudited)Revenue
    
    $
    55,926
    
    
    $
    38,689
    
    
    $
    
    
    
    $
    94,615Operating and other expenses:Cost of operations (exclusive of depreciation,
depletion and amortization)
    
    
    43,683
    
    
    
    25,779
    
    
    
    
    
    
    
    69,462Selling, general and administrative expense
    
    
    12,577
    
    
    
    5,818
    
    
    
    
    
    
    
    18,395Settlement with sellers of Florida Recycling
    
    
    (8,635
    )
    
    
    
    
    
    
    
    
    
    
    (8,635
    )Depreciation, depletion and amortization
    
    
    5,314
    
    
    
    4,398
    
    
    
    
    
    
    
    9,712Foreign exchange gain and other
    
    
    
    
    
    
    21
    
    
    
    
    
    
    
    21Income from operations
    
    
    2,987
    
    
    
    2,673
    
    
    
    
    
    
    
    5,660Equity loss of investees
    
    
    74
    
    
    
    8,413
    
    
    
    (8,487
    )
    
    
    Interest expense
    
    
    3,936
    
    
    
    1,745
    
    
    
    
    
    
    
    5,681Changes in fair value of warrants
    
    
    
    
    
    
    (532
    )
    
    
    
    
    
    
    (532
    )Cumulative Mandatorily Redeemable Preferred Stock
dividends and amortization of issue costs
    
    
    4,535
    
    
    
    
    
    
    
    
    
    
    
    4,535Loss before income taxes
    
    
    (5,558
    )
    
    
    (6,953
    )
    
    
    8,487
    
    
    
    (4,024
    )Income taxes
    
    
    1,278
    
    
    
    417
    
    
    
    
    
    
    
    1,695Loss before cumulative effect of change in accounting principle
    
    
    (6,836
    )
    
    
    (7,370
    )
    
    
    8,487
    
    
    
    (5,719
    )Cumulative effect of change in accounting principle, net of provision
for income taxes of nil
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    $
    (6,836
    )
    
    $
    (7,370
    )
    
    $
    8,487
    
    
    $
    (5,719
    )
 22




---



##### Table of Contents



WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Nine Months Ended September 30, 2005Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    Consolidated(Unaudited)Revenue
    
    $
    163,076
    
    
    $
    123,044
    
    
    $
    
    
    
    $
    286,120Operating and other expenses:Cost of operations (exclusive of depreciation,
depletion and amortization)
    
    
    125,570
    
    
    
    82,520
    
    
    
    
    
    
    
    208,090Selling, general and administrative expense
    
    
    25,859
    
    
    
    17,126
    
    
    
    
    
    
    
    42,985Settlement with sellers of Florida Recycling
    
    
    (4,120
    )
    
    
    
    
    
    
    
    
    
    
    (4,120
    )Depreciation, depletion and amortization
    
    
    17,302
    
    
    
    14,246
    
    
    
    
    
    
    
    31,548Foreign exchange gain and other
    
    
    (18
    )
    
    
    625
    
    
    
    
    
    
    
    607Income (loss) from operations
    
    
    (1,517
    )
    
    
    8,527
    
    
    
    
    
    
    
    7,010Equity earnings in investees
    
    
    (3,844
    )
    
    
    
    
    
    
    3,844
    
    
    
    Interest expense
    
    
    21,082
    
    
    
    190
    
    
    
    
    
    
    
    21,272Cumulative Mandatorily Redeemable Preferred Stock
dividends and amortization of issue costs
    
    
    15,348
    
    
    
    
    
    
    
    
    
    
    
    15,348Loss before income taxes
    
    
    (34,103
    )
    
    
    8,337
    
    
    
    (3,844
    )
    
    
    (29,610
    )Income taxes
    
    
    4,089
    
    
    
    4,493
    
    
    
    
    
    
    
    8,582Loss before cumulative effect of change in accounting principle
    
    
    (38,192
    )
    
    
    3,844
    
    
    
    (3,844
    )
    
    
    (38,192
    )Cumulative effect of change in accounting principle, net of provision
for income taxes of nil
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    $
    (38,192
    )
    
    $
    3,844
    
    
    $
    (3,844
    )
    
    $
    (38,192
    )
 23




---



##### Table of Contents



WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Nine Months Ended September 30, 2004Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    Consolidated(Unaudited)Revenue
    
    $
    114,157
    
    
    $
    103,401
    
    
    $
    
    
    
    $
    217,558Operating and other expenses:Cost of operations (exclusive of depreciation,
depletion and amortization)
    
    
    85,765
    
    
    
    69,987
    
    
    
    
    
    
    
    155,752Selling, general and administrative expense
    
    
    24,899
    
    
    
    16,165
    
    
    
    
    
    
    
    41,064Settlement with sellers of Florida Recycling
    
    
    (8,635
    )
    
    
    
    
    
    
    
    
    
    
    (8,635
    )Depreciation, depletion and amortization
    
    
    11,473
    
    
    
    11,520
    
    
    
    
    
    
    
    22,993Foreign exchange gain and other
    
    
    
    
    
    
    (352
    )
    
    
    
    
    
    
    (352
    )Income from operations
    
    
    655
    
    
    
    6,081
    
    
    
    
    
    
    
    6,736Equity loss of investees
    
    
    74
    
    
    
    41,804
    
    
    
    (41,878
    )
    
    
    Interest expense (income)
    
    
    25,110
    
    
    
    (847
    )
    
    
    
    
    
    
    24,263Changes in fair value of warrants
    
    
    
    
    
    
    (111
    )
    
    
    
    
    
    
    (111
    )Cumulative Mandatorily Redeemable Preferred Stock
dividends and amortization of issue costs
    
    
    12,844
    
    
    
    
    
    
    
    
    
    
    
    12,844Loss before income taxes
    
    
    (37,373
    )
    
    
    (34,765
    )
    
    
    41,878
    
    
    
    (30,260
    )Income taxes
    
    
    2,854
    
    
    
    2,179
    
    
    
    
    
    
    
    5,033Loss before cumulative effect of change in accounting principle
    
    
    (40,227
    )
    
    
    (36,944
    )
    
    
    41,878
    
    
    
    (35,293
    )Cumulative effect of change in accounting principle, net of provision
for income taxes $132
    
    
    
    
    
    
    225
    
    
    
    
    
    
    
    225Net loss
    
    $
    (40,227
    )
    
    $
    (36,719
    )
    
    $
    41,878
    
    
    $
    (35,068
    )
 24




---



##### Table of Contents



WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Nine months ended September 30, 2005Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    Consolidated(Unaudited)Cash flows from operating activities:
    
    $
    (7,726
    )
    
    $
    24,327
    
    
    $
    
    
    
    $
    16,601Cash flows from investing activities:Cash used in business combinations and significant asset
acquisitions, net of cash acquired
    
    
    (6,112
    )
    
    
    (483
    )
    
    
    
    
    
    
    (6,595
    )Capital expenditures
    
    
    (19,034
    )
    
    
    (8,365
    )
    
    
    
    
    
    
    (27,399
    )Proceeds from business divestitures
    
    
    1,382
    
    
    
    353
    
    
    
    
    
    
    
    1,735Deposits for business acquisitions and other
    
    
    (58
    )
    
    
    (735
    )
    
    
    
    
    
    
    (793
    )Intercompany
    
    
    
    
    
    
    (15,318
    )
    
    
    15,318
    
    
    
    (23,822
    )
    
    
    (24,548
    )
    
    
    15,318
    
    
    
    (33,052
    )Cash flows from financing activities:Proceeds from issuance of debt
    
    
    4,000
    
    
    
    
    
    
    
    
    
    
    
    4,000Principal repayments of debt and capital lease obligations
    
    
    (873
    )
    
    
    (390
    )
    
    
    
    
    
    
    (1,263
    )Sale of common shares and warrants
    
    
    7,125
    
    
    
    
    
    
    
    
    
    
    
    7,125Proceeds from the exercise of options and warrants
    
    
    521
    
    
    
    
    
    
    
    
    
    
    
    521Intercompany
    
    
    15,318
    
    
    
    
    
    
    
    (15,318
    )
    
    
    26,091
    
    
    
    (390
    )
    
    
    (15,318
    )
    
    
    10,383Effect of exchange rate changes on cash and cash equivalents
    
    
    
    
    
    
    73
    
    
    
    
    
    
    
    73Decrease in cash and cash equivalents
    
    
    (5,457
    )
    
    
    (538
    )
    
    
    
    
    
    
    (5,995
    )Cash and cash equivalents, beginning of period
    
    
    6,223
    
    
    
    2,284
    
    
    
    
    
    
    
    8,507Cash and cash equivalents, end of period
    
    $
    766
    
    
    $
    1,746
    
    
    $
    
    
    
    $
    2,512
 25




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##### Table of Contents



WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Nine months ended September 30, 2004Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    Consolidated(Unaudited)Cash flows from operating activities:
    
    $
    (4,915
    )
    
    $
    15,607
    
    
    $
    
    
    
    $
    10,692Cash flows from investing activities:Cash used in business combinations and significant asset
acquisitions, net of cash acquired
    
    
    (163,195
    )
    
    
    (1,124
    )
    
    
    
    
    
    
    (164,319
    )Capital expenditures
    
    
    (22,294
    )
    
    
    (11,299
    )
    
    
    
    
    
    
    (33,593
    )Proceeds from business divestitures
    
    
    9,939
    
    
    
    
    
    
    
    
    
    
    
    9,939Deposits for business acquisitions and other
    
    
    1,440
    
    
    
    (2,643
    )
    
    
    
    
    
    
    (1,203
    )Intercompany
    
    
    
    
    
    
    (70,232
    )
    
    
    70,232
    
    
    
    (174,110
    )
    
    
    (85,298
    )
    
    
    70,232
    
    
    
    (189,176
    )Cash flows from financing activities:Proceeds from issuance of debt
    
    
    280,000
    
    
    
    
    
    
    
    
    
    
    
    280,000Principal repayments of debt and capital lease obligations
    
    
    (183,741
    )
    
    
    (965
    )
    
    
    
    
    
    
    (184,706
    )Sale of common shares and warrants
    
    
    
    
    
    
    53,600
    
    
    
    
    
    
    
    53,600Proceeds from release of restricted cash and release of
collateral supporting letters of credit
    
    
    14,433
    
    
    
    9,668
    
    
    
    
    
    
    
    24,101Proceeds from the exercise of options and warrants
    
    
    
    
    
    
    1,041
    
    
    
    
    
    
    
    1,041Fees paid for financing transactions
    
    
    (10,549
    )
    
    
    (2,923
    )
    
    
    
    
    
    
    (13,472
    )Intercompany
    
    
    70,232
    
    
    
    
    
    
    
    (70,232
    )
    
    
    170,375
    
    
    
    60,421
    
    
    
    (70,232
    )
    
    
    160,564Effect of exchange rate changes on cash and cash equivalents
    
    
    
    
    
    
    262
    
    
    
    
    
    
    
    262Decrease in cash and cash equivalents
    
    
    (8,650
    )
    
    
    (9,008
    )
    
    
    
    
    
    
    (17,658
    )Cash and cash equivalents, beginning of period
    
    
    8,843
    
    
    
    12,219
    
    
    
    
    
    
    
    21,062Cash and cash equivalents, end of period
    
    $
    193
    
    
    $
    3,211
    
    
    $
    
    
    
    $
    3,404
 26




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Overview
  Sources of Revenue
      27




---



##### Table of Contents



Expense Structure
       Results of Operations for the Three and Nine Months Ended September 30, 2005 and 2004
  28




---



##### Table of Contents



Three Months Ended September 30, 2005U.S.
    
    
    
    
    
    
    Canada
    
    
    
    
    
    
    TotalRevenue
    
    $
    55,985
    
    
    
    100.0
    %
    
    $
    45,766
    
    
    
    100.0
    %
    
    $
    101,751
    
    
    
    100.0
    %Operating expenses:Cost of operations
    
    
    43,501
    
    
    
    77.7
    %
    
    
    30,006
    
    
    
    65.6
    %
    
    
    73,507
    
    
    
    72.2
    %Selling, general and administrative expense
    
    
    8,038
    
    
    
    14.4
    %
    
    
    5,643
    
    
    
    12.3
    %
    
    
    13,681
    
    
    
    13.4
    %Stock-based compensation expense
    
    
    
    
    
    
    0.0
    %
    
    
    (68
    )
    
    
    -0.1
    %
    
    
    (68
    )
    
    
    -0.1
    %Settlement with sellers of Florida Recycling
    
    
    (4,120
    )
    
    
    -7.4
    %
    
    
    
    
    
    
    0.0
    %
    
    
    (4,120
    )
    
    
    -4.0
    %Depreciation, depletion and amortization
    
    
    6,101
    
    
    
    10.9
    %
    
    
    5,299
    
    
    
    11.6
    %
    
    
    11,400
    
    
    
    11.2
    %Foreign exchange loss and other
    
    
    35
    
    
    
    0.1
    %
    
    
    809
    
    
    
    1.7
    %
    
    
    844
    
    
    
    0.9
    %Income from operations
    
    $
    2,430
    
    
    
    4.3
    %
    
    $
    4,077
    
    
    
    8.9
    %
    
    $
    6,507
    
    
    
    6.4
    %
 Three Months Ended September 30, 2004U.S.
    
    
    
    
    
    
    Canada
    
    
    
    
    
    
    TotalRevenue
    
    $
    55,926
    
    
    
    100.0
    %
    
    $
    38,689
    
    
    
    100.0
    %
    
    $
    94,615
    
    
    
    100.0
    %Operating expenses:Cost of operations
    
    
    43,683
    
    
    
    78.1
    %
    
    
    25,779
    
    
    
    66.6
    %
    
    
    69,462
    
    
    
    73.4
    %Selling, general and administrative expense
    
    
    12,577
    
    
    
    22.5
    %
    
    
    5,432
    
    
    
    14.0
    %
    
    
    18,009
    
    
    
    19.0
    %Stock-based compensation expense
    
    
    
    
    
    
    0.0
    %
    
    
    386
    
    
    
    1.0
    %
    
    
    386
    
    
    
    0.4
    %Settlement with sellers of Florida Recycling
    
    
    (8,635
    )
    
    
    -15.4
    %
    
    
    
    
    
    
    0.0
    %
    
    
    (8,635
    )
    
    
    -9.1
    %Depreciation, depletion and amortization
    
    
    5,314
    
    
    
    9.5
    %
    
    
    4,398
    
    
    
    11.5
    %
    
    
    9,712
    
    
    
    10.3
    %Foreign exchange loss and other
    
    
    
    
    
    
    0.0
    %
    
    
    21
    
    
    
    0.1
    %
    
    
    21
    
    
    
    0.0
    %Income from operations
    
    $
    2,987
    
    
    
    5.3
    %
    
    $
    2,673
    
    
    
    6.9
    %
    
    $
    5,660
    
    
    
    6.0
    %
 29




---



##### Table of Contents



Nine Months Ended September 30, 2005U.S.
    
    
    
    
    
    
    Canada
    
    
    
    
    
    
    TotalRevenue
    
    $
    163,076
    
    
    
    100.0
    %
    
    $
    123,044
    
    
    
    100.0
    %
    
    $
    286,120
    
    
    
    100.0
    %Operating expenses:Cost of operations
    
    
    125,570
    
    
    
    77.0
    %
    
    
    82,520
    
    
    
    67.1
    %
    
    
    208,090
    
    
    
    72.7
    %Selling, general and administrative expense
    
    
    25,859
    
    
    
    15.9
    %
    
    
    16,047
    
    
    
    13.0
    %
    
    
    41,906
    
    
    
    14.6
    %Stock-based compensation expense
    
    
    
    
    
    
    0.0
    %
    
    
    1,079
    
    
    
    0.9
    %
    
    
    1,079
    
    
    
    0.4
    %Settlement with sellers of Florida Recycling
    
    
    (4,120
    )
    
    
    -2.5
    %
    
    
    
    
    
    
    0.0
    %
    
    
    (4,120
    )
    
    
    -1.4
    %Depreciation, depletion and amortization
    
    
    17,302
    
    
    
    10.6
    %
    
    
    14,246
    
    
    
    11.6
    %
    
    
    31,548
    
    
    
    11.0
    %Foreign exchange loss and other
    
    
    (18
    )
    
    
    0.0
    %
    
    
    625
    
    
    
    0.6
    %
    
    
    607
    
    
    
    0.2
    %Income (loss) from operations
    
    $
    (1,517
    )
    
    
    -1.0
    %
    
    $
    8,527
    
    
    
    6.8
    %
    
    $
    7,010
    
    
    
    2.5
    %
 Nine Months Ended September 30, 2004U.S.
    
    
    
    
    
    
    Canada
    
    
    
    
    
    
    TotalRevenue
    
    
    $
    114,157
    
    
    
    100.0
    %
    
    $
    103,401
    
    
    
    100.0
    %
    
    $
    217,558
    
    
    
    100.0
    %Operating expenses:Cost of operations
    
    
    85,765
    
    
    
    75.1
    %
    
    
    69,987
    
    
    
    67.7
    %
    
    
    155,752
    
    
    
    71.6
    %Selling, general and administrative expense
    
    
    24,873
    
    
    
    21.8
    %
    
    
    16,839
    
    
    
    16.3
    %
    
    
    41,712
    
    
    
    19.2
    %Stock-based compensation expense (benefit)
    
    
    26
    
    
    
    0.0
    %
    
    
    (674
    )
    
    
    -0.7
    %
    
    
    (648
    )
    
    
    -0.3
    %Settlement with sellers of Florida Recycling

    
    
    (8,635
    )
    
    
    -7.6
    %
    
    
    
    
    
    
    0.0
    %
    
    
    (8,635
    )
    
    
    -4.0
    %Depreciation, depletion and amortization
    
    
    11,473
    
    
    
    10.1
    %
    
    
    11,520
    
    
    
    11.1
    %
    
    
    22,993
    
    
    
    10.6
    %Foreign exchange loss and other
    
    
    
    
    
    
    0.0
    %
    
    
    (352
    )
    
    
    -0.3
    %
    
    
    (352
    )
    
    
    -0.2
    %Income from operations
    
    
    $
    655
    
    
    
    0.6
    %
    
    $
    6,081
    
    
    
    5.9
    %
    
    $
    6,736
    
    
    
    3.1
    %
 Revenue
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Collection
    
    $
    83,841
    
    
    
    75.6
    %
    
    $
    81,135
    
    
    
    80.4
    %
    
    $
    238,977
    
    
    
    77.2
    %
    
    $
    182,622
    
    
    
    78.9
    %Landfill disposal
    
    
    13,081
    
    
    
    11.8
    
    
    
    7,453
    
    
    
    7.4
    
    
    
    31,211
    
    
    
    10.1
    
    
    
    16,481
    
    
    
    7.1Transfer stations
    
    
    10,345
    
    
    
    9.3
    
    
    
    8,200
    
    
    
    8.1
    
    
    
    28,791
    
    
    
    9.3
    
    
    
    19,375
    
    
    
    8.4Material recovery facilities
    
    
    2,563
    
    
    
    2.3
    
    
    
    3,007
    
    
    
    3.0
    
    
    
    8,200
    
    
    
    2.6
    
    
    
    7,820
    
    
    
    3.4Other specialized services
    
    
    1,055
    
    
    
    1.0
    
    
    
    1,137
    
    
    
    1.1
    
    
    
    2,876
    
    
    
    0.8
    
    
    
    5,378
    
    
    
    2.2110,885
    
    
    
    100.0
    %
    
    
    100,932
    
    
    
    100.0
    %
    
    
    310,055
    
    
    
    100.0
    %
    
    
    231,676
    
    
    
    100.0
    %Intercompany elimination
    
    
    (9,134
    )
    
    
    
    
    
    
    (6,317
    )
    
    
    
    
    
    
    (23,935
    )
    
    
    
    
    
    
    (14,118
    )$
    101,751
    
    
    
    
    
    
    $
    94,615
    
    
    
    
    
    
    $
    286,120
    
    
    
    
    
    
    $
    217,558
  30




---



##### Table of Contents



Cost of Operations
      31




---



##### Table of Contents



Selling, general and administrative expense
   Stock-based compensation expense (benefit)
  Settlement with sellers of Florida Recycling
  32




---



##### Table of Contents



Depreciation, depletion and amortization
   Foreign exchange loss and other
  Interest expense, preferred stock dividends and amortization of issue costs
  33




---



##### Table of Contents



Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Preferred Stock dividends and amortization of issue costs
    
    $
    5,392
    
    
    $
    4,535
    
    
    $
    15,348
    
    
    $
    12,844Credit facility and Senior Subordinated Note
interest
    
    
    6,566
    
    
    
    5,192
    
    
    
    19,083
    
    
    
    13,955Amortization of debt issue costs
    
    
    351
    
    
    
    314
    
    
    
    1,056
    
    
    
    9,930Capitalized interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (178
    )Other interest expense
    
    
    357
    
    
    
    175
    
    
    
    1,133
    
    
    
    556$
    12,666
    
    
    $
    10,216
    
    
    $
    36,620
    
    
    $
    37,107
  Income tax provision
  Liquidity and Capital Resources
  Senior Secured Credit Facilities
  34




---



##### Table of Contents



Maximum ConsolidatedMaximum Consolidated
    
    Senior
    
    Minimum ConsolidatedFiscal Quarter
    
    Leverage Ratio
    
    Secured Leverage Ratio
    
    Interest Coverage RatioFQ3 2005
    
    5.75:1.00
    
    2.50:1.00
    
    1.75:1.00FQ4 2005
    
    5.25:1.00
    
    2.50:1.00
    
    2.00:1.00FQ1 2006
    
    5.25:1.00
    
    2.25:1.00
    
    2.00:1.00FQ2 2006
    
    5.25:1.00
    
    2.25:1.00
    
    2.00:1.00FQ3 2006
    
    5.00:1.00
    
    2.25:1.00
    
    2.00:1.00
 Senior Subordinated Notes
    35




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##### Table of Contents



Equity Placement
  Cumulative Mandatory Redeemable Preferred Stock
   Migration Transaction
   Surety Bonds, Letters of Credit and Insurance
   36




---



##### Table of Contents



Cash Flows
  Cash Flows from Operating Activities
  Cash Flows used in Investing Activities
  Cash Flows from Financing Activities
  Off-Balance Sheet Financing
  37




---



##### Table of Contents



Landfill Sites
  Balance,
    
    Changes in
    
    
    
    
    
    Balance,Beginning
    
    Engineering
    
    Airspace
    
    Endof Period
    
    Estimates
    
    Consumed
    
    of PeriodUnited StatesPermitted capacity
    
    
    268,883
    
    
    
    (414
    )
    
    
    (1,320
    )
    
    
    267,149Probable expansion capacity
    
    
    18,300
    
    
    
    
    
    
    
    
    
    
    
    18,300Total available airspace
    
    
    287,183
    
    
    
    (414
    )
    
    
    (1,320
    )
    
    
    285,449Number of landfill
sites
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    4CanadaPermitted capacity
    
    
    11,642
    
    
    
    1,115
    
    
    
    (662
    )
    
    
    12,095Total available airspace
    
    
    11,642
    
    
    
    1,115
    
    
    
    (662
    )
    
    
    12,095Number of landfill sites
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    3TotalPermitted capacity
    
    
    280,525
    
    
    
    701
    
    
    
    (1,982
    )
    
    
    279,244Probable expansion capacity
    
    
    18,300
    
    
    
    
    
    
    
    
    
    
    
    18,300Total available airspace
    
    
    298,825
    
    
    
    701
    
    
    
    (1,982
    )
    
    
    297,544Number of landfill sites
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    7
 Trend Information
 Seasonality
  New Accounting Pronouncements
  38




---



##### Table of Contents



Disclosure Regarding Forward-Looking Statements and Factors Affecting Future Results
  
    
    our anticipated revenues, capital expenditures, future cash flows and financing
requirements, and those of companies or assets we acquire;
    
    the implementation of our business strategy;
    
    descriptions of the expected effects of our competitive strategies; and
    
    the impact of actions taken by our competitors and other third parties,
including courts and other governmental authorities.
  
    
    significant restrictive covenants in our various credit facilities and our
ability to finance acquisitions with cash on hand, debt or equity offerings;
    
    changes in regulations affecting our business and costs of compliance;
    
    revocation of existing permits and licenses or the refusal to renew or grant
new permits and licenses, which are required to enable us to operate our business or
implement our growth strategy;
    
    our ability to successfully implement our corporate strategy and integrate any acquisitions we undertake;
    
    our ability to negotiate renewals of existing service agreements at favorable rates;
    
    our ability to enhance profitability of certain aspects of our operations in
markets where we are not internalized through either divestiture or asset swaps;
    
    costs and risks associated with litigation;
    
    changes in general business and economic conditions, changes in exchange rates
and in the financial markets;
    
    changes in accounting standards or pronouncements; and
    
    construction, equipment delivery or permitting delays for our transfer stations or landfills.
  39




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
   
 Item 4. Controls and Procedures
 Disclosure Controls and Procedures/Evaluation of Disclosure Controls and Procedures
  Changes in Internal Controls Over Financial Reporting
  
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
 40




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##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
 Exhibit 10.1 
    
    Employment Agreement dated as of October 26, 2005 between us and David
Sutherland-YoestExhibit 31.1 
    

Section 302
Certification of David Sutherland-Yoest, Chief Executive OfficerExhibit 31.2 
    
    Section 302 Certification of Mark A. Pytosh, Chief Financial OfficerExhibit 32.1 
    
    Section 1350 Certification of the Chief Executive Officer and Chief Financial Officer
 41




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##### Table of Contents



SIGNATURES
   By:
    /s/ DAVID SUTHERLAND-YOESTDavid Sutherland-YoestChairman of the Board,
Chief Executive Officer, and Director By:
    /s/ MARK A. PYTOSHMark A. PytoshExecutive Vice President and
Chief Financial Officer 42




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No
    
    
    
    DescriptionExhibit 10.1
    
    
    
    Employment Agreement dated as of October 26, 2005 between us and David
Sutherland-YoestExhibit 31.1
    
    
    
    Section 302 Certification of David Sutherland-Yoest, Chief Executive OfficerExhibit 31.2
    
    
    
    Section 302 Certification of Mark A. Pytosh, Chief Financial OfficerExhibit 32.1
    
    
    
    Section 1350 Certification of the Chief Executive Officer and Chief Financial Officer